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Full text of "Vaudtbudgetreview"

OFFICE OF AUDITOR OF STATE 

STATE OF IOWA 

State Capitol Building 
Des Moines, Iowa 50319-0004 

Telephone (515) 281-5834 Facsimile (515) 242-6134 



David A. Vaudt, CPA 
Auditor of State 



For Immediate Release 



February 6, 2012 Contact: Bernardo Granwehr, Auditor's Office, 515-242-5949 



State Auditor Vaudt Reviews Governor Branstad's 



Fiscal Year 2013 Budget Proposal 



(Des Moines, Iowa) - Continuing in his role as the "Taxpayers' Watchdog" and his duty to report 
directly to the people of Iowa on the condition of the state's finances, State Auditor David A. Vaudt 
has completed his review of the Governor's proposed Fiscal Year 2013 budget. Vaudt said, "While 
there are still areas for improvement, this budget proposal continues to build on the progress made last 
year in the areas of fiscal sustainability, transparency, and long-term planning." 

Budget Proposal Continues to Reduce Reliance on One-Time Resources 

Auditor Vaudt has continually criticized the practice of shifting General Fund costs to one-time or 
limited-time resources because services are not sustainable when the one-time monies are depleted. 
The Fiscal Year 2011 adopted budget shifted nearly $700 million of General Fund costs, creating a 
huge spending gap for Fiscal Year 2012 when many of the one-time monies went away. The Fiscal 
Year 2012 adopted budget reduced the reliance on one-time monies by $544 million, or 71%. 

Auditor Vaudt noted while there is still $59 million of expenditure shifts occurring in the Governor's 
budget proposal for Fiscal Year 2013, this represents an additional reduction in the reliance on one- 
time monies. Vaudt added, "The practice of shifting General Fund costs to one- time or limited-time 
sources has been nearly eliminated in this budget proposal. We've come a long way in a short period 
of time." 

Long-Term Planning Contributes to Reduced Spending Gap 

The Governor's budget proposal represents the amendment of the second year of a two-year budget 
adopted during the 2011 Legislative session. If implemented, the Governor's proposal would reduce 



the spending gap from $764 million in Fiscal Year 2011 to $139 million in 2013 - an 82% reduction. 
Vaudt said two factors led to the dramatic, two-year reduction in the spending gap - modest, 1.3% 
average annual spending growth in the face of 4% annual revenue growth. Vaudt said, "The 
Governor's proposal builds on a long-term approach - an approach that takes into account the long- 
term sustainability of services instead of only thinking about the next year." Vaudt added the proposed 
budget reflects a departure from past practices where State spending simply increased as revenues 
increased without regard for the spending gap or the long-term sustainability of expanding existing 
programs or creating new ones. 

Concerns and Challenges Ahead 

Auditor Vaudt noted increased salary and benefit costs are not funded in the Governor's proposed 
budget, which means agencies will have to absorb the increased costs. This would be the fourth 
consecutive year salary costs were unfunded. The salary and benefit cost increases may be funded 
through unpaid leave days, layoffs and/or not replacing employees who leave. Auditor Vaudt said, "If 
this practice continues without offsetting agency efficiencies, these unfunded salary and benefit cost 
increases will significantly impact the level of service agencies can provide." 

There will be considerable pressure on revenues and spending in the coming years as a result of 
Federal actions. Vaudt noted, "If the Federal tax code remains unchanged, Iowa will feel the impact of 
expired income tax cuts, expired biodiesel and alternative fuel tax credits, and the expired AMT 
(Alternative Minimum Tax) patch. These will have a $175 million negative impact on our state 
revenues in Fiscal Year 2014, and we must plan accordingly." In addition, Federal health care changes 
will increase the number of Medicaid-eligible Iowans by 150,000, and the state will gradually take on 
up to 10% of the costs of serving these new recipients. Plus, the State currently receives 
approximately $6 billion annually from the Federal government. Vaudt noted, "As the Federal 
government addresses its fiscal imbalance, Iowa can expect a decline in Federal support." 

In addition, Iowa's pension system, IPERS, has seen its unfunded actuarial liability grow from $327 
million at the end of Fiscal Year 2000 to $5.7 billion in Fiscal Year 2011 - a 1,643% increase. Vaudt 
noted the contribution rates to IPERS have increased over the past few years to partially address this 
issue. Vaudt said, "IPERS is only 80% funded today, versus 98% funded in 2000. Improving the 
funded status of IPERS has to be a priority in our long-term financial planning." 

#### 



February 6, 2012 




Auditor of State 
David A. Vaudt 

Comments on 
Governor Branstad's & Lt. Governor Reynolds' 
Fiscal Year 2013 Proposed Budget 

February 6, 2012 



State of Iowa 




FY 13 General Fund Budget 


Governor's Proposal 




Remarks today will focus on — 




■ "Expenditure Shifts 101" - 


A Refresher 


■ A Comparison of the Numbers - FY1 1, 


FY12, and FY13 




■ Concerns Noted 




■ Challenges Ahead 




David A. Vaudt, Auditor of State, February 6, 2012 


2 



State of Iowa 
Expenditure Shifts 



All expenditure shifts are not equal. 



(^Sustainabilit^)vs. Comparability & Policy 



David A. Vaudt, Auditor of State, February 6, 2012 



State of Iowa 
"Expenditure Shifts 101" - A Refresher 



Ongoing General 
Fund cost? 



Yes 



No ■ 




Valid shift 




Ongoing revenue 
stream? 




No 








" Sustainability" 
Shift 




Yes 

i_ 

^" Comparability " 
& "Policy" Shift 



David A. Vaudt, Auditor of State, February 6, 2012 



State of Iowa 
FY 13 General Fund Budget 
Expenditures - Sustainability Shifts 



Jh $500 



$698 



$302 



Expenditure shifts to: 

B ARRA - Federal 
stimulus 

rn Other one-time 
resources 



; $396 



$102 




$59 



FY13 
Governor's 
Proposal 



Iowa's #1 fiscal health issue — sustainability — was addressed in FY12 by significantly 
reducing reliance on one-time monies by $596 million, or 85%. The Governor's FY 13 
proposal makes additional progress. 



David A. Vaudt, Auditor of State, February 6, 2012 



State of Iowa 
FY 13 General Fund Budget 
Expenditures - Comparability and Policy Shifts 



$341 



S $200 




Policy 



Comparability 



FY12 
Adopted 
Budget 



FY13 
Governor's 
Proposal 



Policy shifts requiring "notwithstanding" language have been nearly eliminated. On the 
comparability front — transparency/ clarity — Iowa experienced a step backwards for FY12. 
This was primarily a result of the shift of $106 million of tobacco tax from the General 
Fund to the Health Care Trust Fund beginning in FY 12. 



David A. Vaudt, Auditor of State, February 6, 2012 



State of Iowa 
FY 13 General Fund Budget 
A Comparison of the Numbers 

($ in Millions) 





FY11 


FY12 


FY13 




Adopted 


Adopted 


Governor's 




Budget 


Budget 


Proposal 


Available ongoing revenues 


$5,533 


$6,226 


$6,481 


True total expenditures 


6,297 


6,446 


6,620 


Spending gap 


$ (764) 


$ (220) 


$ (139) 


Spending gap as a % 








of available ongoing 








revenues 


13.8% 


3.5% 


2.1% 


After reducing the spending gap 


by $544 million, a 71% reduction, 



FY12, the Governor's proposal further reduces the spending gap by $81 
million, a 37% reduction from FY 12. 

David A. Vaudt, Auditor of State, February 6, 2012 7 



State of Iowa 








FY 13 General Fund Budget 






A Comparison of the Numbers - Revenues 




($ in Millions) 








FY11 


FY12 


FY13 




Adopted 


Adopted 


Governor's 




Budget 


Budget 


Proposal 




Available ongoing revenues $5,533 


$6,226 


$6,481 




Revenue increase comparison: 








Amount $ 29 


$ 693 


$ 255 




Percentage 0.5% 


12.5% 


4. 1% 




David A. Vaudt, Auditor of State, February 6, 2012 






8 



4 



State of Iowa 
FY 13 General Fund Budget 
A Comparison of the Numbers - Expenditures 

($ in Millions) 

FY11 FY12 FY13 
Adopted Adopted Governor's 
Budget Budget Proposal 



True total expenditures 

Underfunded school aid 
Adjusted comparison 



$6,297 $6,446 $6,620 

156 - - 

$6,453 $6,446 $6,620 



Spending increase (decrease) 
— adjusted comparison: 

Amount $313 



$ (7) $174 



Percentage 



5. 1% (0.1)% 2.7% 



When FY1 1 is adjusted for underfunded school aid, spending growth in 
FY12 and FY13 combined is only $167 million — an average of 1.3% per 
year. 

David A. Vaudt, Auditor of State, February 6, 2012 



State of Iowa 
FY 13 General Fund Budget 
A Comparison of the Numbers - Spending Gap 

($ in Millions) 



FY11 Spending gap 

FY 12: Available ongoing revenues increase 
FY1 1 School aid not funded 
True total expenditures decrease 

FY 12 Spending gap 

FY 13: Available ongoing revenues increase 
True total expenditures increase 

FY 13 Spending gap 



(764J 

693 
(156) 

7_ 

255 
(174) 

139] 



71% 
reduction 



37% 
reduction 



Controlled spending growth in FY 12 and FY13, coupled with revenue 
growth, has substantially reduced Iowa's spending gap. 



David A. Vaudt, Auditor of State, February 6, 2012 



State of Iowa 
FY 13 General Fund Budget 
Spending Sustainability 

For every dollar of available ongoing revenues, Iowa is spending: 



$1.14 








































$1.04 










$1.02 












FY11 

Adopted 
Budget 


FY12 
Adopted 
Budget 


FY13 
Governor's 
Proposal 



By decreasing Iowa's reliance on one-time monies, Iowa's spending decreased from 
$1.14 to $1.02 per $1.00 of available ongoing revenues in just two years. This 
continued sustainability improvement is commendable. 

David A. Vaudt, Auditor of State, February 6, 2012 u 



State of Iowa 
FY 13 General Fund Budget 
Concern - REC Revenue Estimates 

($ in Millions) 



REC revenue increases: 


FYll 


FY12 


FY13 




12/10 est. v. 12/11 est. 


1.6% 


(0.7%) 


N/A 




FY11 v. FY12 v. FY13 (12/11 est.) 


6.3%(B) 








FY11 v. FY13 (12/11 est.) 


N/A 


N/A 


C~7.8%) 




FY10 v. FY13 (12/11 est.) 


N/A 


N/A 


14.6% 


REC revenue estimates (A): 


FYll 


FY12 


FY13 


Dec. 2010 estimate 


$5,807 


$6,151 


N/A 


Mar. 2011 estimate 


$5,855 


$6, 098(C) 


N/A 


Oct. 2011 estimate 


$5,899(B 


$6,08 1(C) 


$6. 315(C) 


Dec. 2011 estimate 


$5. 899(B) $6,106(C) 


$6. 358(C) 




(A) Not adjusted for 99% expenditure limitation. 

(B) Actual FY11. 

(C) Adjusted for $106 million tobacco tax deposited 


in Health Care Trust Fund beginning in FY12. 



David A. Vaudt, Auditor of State, February 6, 2012 



State of Iowa 
FY 13 General Fund Budget 
Concern - Carry-forward Balances and the Risk 



Excess monies from Economic 
Emergency Fund 



FY12 
Adopted 
Budget 

$284 



FY13 
Governor's 
Proposal 

$285 



One-time monies should be used for one-time expenditures . Considering 
these carru- -forward balances , which are one-time monies, as a resource to 
pay ongoing General Fund expenditures creates the risk of repeating 
Iowa's past mistakes. The Governor and the Legislature should consider 
alternatives to prevent the conseguences of using carry-forward balances 
for ongoing expenditures. 

David A. Vaudt, Auditor of State, February 6, 2012 



State of Iowa 
FY 13 General Fund Budget 
Other Concerns 



Salary and benefit cost increases not funded - 4 th 
consecutive year agencies have had to absorb 
increased costs ($80 million in FY 13). 

Department of Corrections increased staff and other 
costs for new community-based correctional facilities 
and Mitchellville and Fort Madison prisons not funded 
($19 million in FY 13). 



David A. Vaudt, Auditor of State, February 6, 2012 





State of Iowa 






FY 13 General Fund Budget 


9.0 - 


Challenges Ahead 


- Federal Monies 


8.0 - 


$8.3 












$7.1 






7.0 

e.o - 


$6.6 




$6.5 

$6.2 




e 










a 5.0 
a 










.5 4 -° ■ 
« 










3.0 










2.0 
1.0 - 












FY08 FY09 FY 10 


FY11 


FY12 FY13 
Estimate Projected 


Iowa relies heavily on Federal monies to support r 


nany of our General Fund 


services, 


like Medicaid. As the Federal government addresses its fiscal 


imbalance, Iowa can anticipate a decline in Federal support. 


David A. Vaudt, Auditor of State, February 6, 2012 




15 



100% 
90% 
80% 
70% 
60% 
50% 
40% 
30% 
20% 
10% 
0% 



State of Iowa 
FY 13 General Fund Budget 
Challenges Ahead - Pensions 

IPERS Percentage Funded 
2000 through 2011 





1 /n f 


























C 80%; 










































































































































































































FY FY FY 
00 01 02 


FY 1 

03 ( 


T FY 
)4 05 


FY 
06 


FY 
07 


FY FY FY 
08 09 10 


FY 
11 





The IPERS unfunded actuarial liability as of June 30, 2000 was $327 
million — that liability has grown to $5. 7 billion at June 30, 2011. 



David A. Vaudt, Auditor of State, February 6, 2012 



State of Iowa 
FY 13 General Fund Budget 
Other Challenges Ahead 



The Federal tax cuts expire, which when coupled with 
the other Federal tax changes, will negatively impact 
Iowa revenues — a net $75 million reduction in Iowa 
revenues is already included in FY13, with an 
additional net reduction of $175 million for FY14. 

With the Federal health care changes, more Iowans will 
be eligible for Medicaid — it is estimated an additional 
150,000 Iowans will become Medicaid eligible, and the 
State will gradually take on 10% of the cost of these 
new Medicaid recipients. 



David A. Vaudt, Auditor of State, February 6,2012